2023 began for the crypto industry with more significant price appreciation than many expected. The latest report from the Bank of America (BA) shows that there has been a 42% jump in the value of digital assets since the start of the year.
The Year Of Token Price Divergence
According to the Bank of America’s report on Friday, 2023 will signal the start of token price divergence. The report also revealed utility tokens and cash flows outperformed meme and governance assets.
The BA views crypto assets powered by smart contracts-enabled blockchain tokens as growth drivers having the same risk exposure as growth stocks. It added that these crypto assets and small-cap tokens triggered the recent price rally at the start of the year.
Furthermore, strategists at the Bank of America are cautious on the growth aspect as a solid economic performance delayed the recession’s timing, indicating the likelihood of reflation and additional rates increase by the Federal Reserve.
Analysts Alkesh Shah and Andrew Moss said January’s risk asset rally was partly fueled by short-covering and mean-reversion. They added that it is highly likely that longer-rate jurisdictions may face growth pressure, and so would digital assets.
It is worth noting that shorting in the market is a type of betting that traders do in anticipation of a price decline for a particular commodity. In this case, an investor will borrow a security and then sell it, hoping the price will decrease.
They then rebuy the asset and return it to the lender. On the other hand, mean reversion is a theoretical concept deployed in the financial sector to suggest that asset prices tend to return to their long-term average level.
Crypto Remains Resilient Amid Regulatory Action
Meanwhile, a recent report published by the US banking giant Citi shows that the crypto market has remained resilient despite the weaknesses from the equity sector and increased regulatory action against firms.
The Citi research noted that the correlation between cryptocurrency and the stock market has continued to drop following last year’s highs. According to the lead analyst (Alex Saunders), trade volumes in the digital asset market remains strong, but on-chain and other activities have not been satisfactory.
On the stablecoin market, the study revealed that they have remained steady following the collapse of the FTX crypto exchange last November. Similarly, the report noted that the percentage of ETH in smart contracts is increasing.
The bank’s research points out that the current plan by the US Securities and Exchange Commission (SEC) to sue the BUSD stablecoin issuer, Paxos, led to the outflow of over $3.5 billion from the Binance exchange. The research added that interest in crypto search is still low despite the year-to-date price uptrend in digital assets.
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